Consider the market for the EppiPencil, a device which calibrates and auto-injects the drugepinephrine in order to combat an allergic reaction. Assume the initial price of the drugwas $50 per unit, and at that price there were 2,000 units sold. Miland, the manufacturerof the EppiPencil, has hired you as an economic consultant. You are tasked with increasingrevenues for the company. After some research, you discover that if you raise the price of theEppiPencil to $75, consumers will be willing to purchase 1,500 units.

Based on the information above:1. At the initial price of $50 per EppiPencil, how much revenue would the total salesof 2000 EppiPencils create for Miland?:Revenue= $– If you recommend the option to raise the price to $75 and sell 1500 EppiPen-cils:2. At the new price of $75 per EppiPencil, how much revenue would the total sales of1500 EppiPencils create for Miland?:Revenue= $3. Calculate the Percentage Change in Price: ∆P=%4. Calculate the Percentage Change in Quantity Demanded (be careful with the sign):∆Qd=%5. Calculate the Price Elasticity of Demand (DO NOT use the Mid-Point Method)(DONOT take the absolute value): (be very careful with the sign)εpd=6. Based on your answer above, Demand for EppiPencils would be considered:(a) Perfectly Inelastic(b) Inelastic(c) Unit Elastic(d) Elastic(e) Perfectly Elastic–****Assuming the same Price Elasticity of Demand calculated above:****7. If you instead recommended that Miland lower the price from $50 to $40, how manyEppiPencils would you expect to sell?Qd=8. At the new price of $40 per unit, how much revenue would the total sales of Ep-piPencils create for Miland?:Revenue= $– Based on all of the information above:9. If Milandraisesthe Price of EppiPencils (from $50 to $75), total revenues collectedwill(increase/decrease).10. If Milandlowersthe Price of EppiPencils (from $50 to $40), total revenues collectedwill(increase/decrease).11. Therefore, in order to meet Miland’s goal of maximizing revenues, from the followingoptions you should recommend that Miland:(a) Decrease the price to $40(b) Maintain the price at $50(c) Increase the price to $752

Let’s take this a step further, and assume that Miland actually cares aboutmaximizing Profits, and not specifically revenues.– Assume that Miland faces a constant Marginal Cost of $45 per EppiPencilit produces.12. Calculate the Net Profit that Miland will earn if EppiPencils are sold at a price of$40 each. :Profit= $13. Calculate the Net Profit that Miland will earn if EppiPencils are sold at a price of$50 each. :Profit= $14. Calculate the Net Profit that Miland will earn if EppiPencils are sold at a price of$75 each. :Profit= $15. Therefore, in order to meet Miland’s goal of maximizing PROFIT, from the followingoptions you should recommend that Miland:(a) Set the price at $40(b) Set the price at $50(c) Set the price at $75

Washington County’s Board of Representatives is considering the construction of a longer runway at the county airport. Currently, the airport can handle only private aircraft and small commuter jets. A new, long runway would enable the airport to handle the midsize jets used on many domestic flights. Data pertinent to the board’s decision appear below.

In addition to the preceding data, two other facts are relevant to the decision. First, a longer runway will require a new snowplow, which will cost $155,000. The old snowplow could be sold now for $15,500. The new, larger plow will cost $13,000 more in annual operating costs. Second, the County Board of Representatives believes that the proposed long runway, and the major jet service it will bring to the county, will increase economic activity in the community. The board projects that the increased economic activity will result in $66,000 per year in additional tax revenue for the county.

In analyzing the runway proposal, the board has decided to use a 10-year time horizon. The county’s hurdle rate for capital projects is 6 percent.

Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)

Required:

1. 1. Prepare a net-present-value analysis of the proposed long runway.

2. 2. Should the County Board of Representatives approve the runway considering NPV?

3. 3-a. Which of the data used in the analysis are likely to be most uncertain?

4. 3-b. Which of the data used in the analysis are likely to be least uncertain?

• Req 1
• Req 2
• Req 3A
• Req 3B

Prepare a net-present-value analysis of the proposed long runway. (Round your "Annuity discount factor" to 3 decimal places. Negative amounts should be indicated by a minus sign.)

Should the County Board of Representatives approve the runway considering NPV?

Which of the data used in the analysis are likely to be most uncertain? (Select which of the following statements (is) are true by selecting an "X".)

Mastery Problem: Target Income and Margin of Safety

Target Income and Margin of Safety

At the break-even point, sales and costs are exactly equal. However, the goal of most companies is to make a profit. When a company decides that it wants to earn more than the break-even point of income, it must define the amount it thinks it will realistically make. By modifying the break-even equation, the sales required to earn a target or desired amount of profit may be computed.

Complete the following:
If a company makes $5 off of each unit it sells and has a target operating income of $5,000, then it must sell  units. Similarly, if a company has a target operating income of $50,000 and knows that total expenses for the period will be $50,000, how much revenue must it earn to reach its target operating income? $

Units sold or revenue earned above and beyond the break-even point contributes to the margin of safety for a company. Margin of safety is a crude measure of risk, in that it serves as the padding between profit and the break-even point.

Complete the following:
Expressed in terms of units, if a company hits its break-even point in units (say, 300 units) and actually sells 500 units, then the margin of safety is  units. Similarly, if the break-even point in sales revenue is $80,000, and it actually has sales revenue of $250,000, then its margin of safety is $.

APPLY THE CONCEPTS: Target income (number of units sold)

Suppose a business has pricing and cost information as follows::

For the upcoming period, the company wishes to generate operating income of $900. Given the cost and pricing structure for the company’s product, how many units must the company sell to attain its target income?

Remember that the basic equation for calculating operating income is as follows:

Step 1: Replace the operating income in the equation with your company’s target income, and insert your cost and pricing information into the equation, as well:

Step 2: Rearrange the equation to isolate units to one side of the equation:

Number of Units to Earn Target Income =  units

Step 3: Create a contribution margin income statement to check your previous work. Enter all amounts as positive numbers.

APPLY THE CONCEPTS: Target income (sales revenue)

Another useful method for figuring out the type of performance your company will need to reach a target income is by using sales revenue. Rather than using the number of units, this method uses total sales revenue. In companies for which the total set of goods produced and sold is more varied, this would be the preferred method, as opposed to a business in which only one product is sold. Assume a company has pricing and cost information as follows:

For the upcoming period, the company wishes to generate operating income of $75,000. Given the cost and pricing structure for the company’s product, how much sales revenue must it generate to attain its target income?

Step 1: Calculate the contribution margin ratio:

The contribution margin ratio is the contribution margin in proportion to the selling price on a per-unit basis.

Note: The contribution margin ratio is calculated to one decimal place.)

Step 2: Calculate the sales revenue required to attain the target income:

Step 3: Create a contribution margin income statement, to check your previous work. Enter all amounts as positive numbers.

APPLY THE CONCEPTS: Margin of Safety
Margin of safety can allow you to see how much padding there is for your company between profit and loss. If this number is great, it may indicate that your company is performing very well. If this number is small, it may be worth looking into possible remediation. Consider the following pricing and cost information:

For the upcoming period, the company projects that it will sell 1,000 units. Considering that the company has a unit break-even point of 600 units, what is the margin of safety in terms of both units and sales revenue? Round your answers to two decimal places, if necessary.

Mastery Problem: Target Income and Margin of Safety

Target Income and Margin of Safety

At the break-even point, sales and costs are exactly equal. However, the goal of most companies is to make a profit. When a company decides that it wants to earn more than the break-even point of income, it must define the amount it thinks it will realistically make. By modifying the break-even equation, the sales required to earn a target or desired amount of profit may be computed.

Complete the following:
If a company makes $3 off of each unit it sells and has a target operating income of $1,200, then it must sell  units. Similarly, if a company has a target operating income of $75,000 and knows that total expenses for the period will be $75,000, how much revenue must it earn to reach its target operating income? $

Units sold or revenue earned above and beyond the break-even point contributes to the margin of safety for a company. Margin of safety is a crude measure of risk, in that it serves as the padding between profit and the break-even point.

Complete the following:
Expressed in terms of units, if a company hits its break-even point in units (say, 100 units) and actually sells 400 units, then the margin of safety is  units. Similarly, if the break-even point in sales revenue is $200,000, and it actually has sales revenue of $400,000, then its margin of safety is $.

Feedback

APPLY THE CONCEPTS: Target income (number of units sold)

Suppose a business has pricing and cost information as follows::

For the upcoming period, the company wishes to generate operating income of $900. Given the cost and pricing structure for the company’s product, how many units must the company sell to attain its target income?

Remember that the basic equation for calculating operating income is as follows:

Step 1: Replace the operating income in the equation with your company’s target income, and insert your cost and pricing information into the equation, as well:

Step 2: Rearrange the equation to isolate units to one side of the equation:

Number of Units to Earn Target Income =  units

Step 3: Create a contribution margin income statement to check your previous work. Enter all amounts as positive numbers.

Feedback

APPLY THE CONCEPTS: Target income (sales revenue)

Another useful method for figuring out the type of performance your company will need to reach a target income is by using sales revenue. Rather than using the number of units, this method uses total sales revenue. In companies for which the total set of goods produced and sold is more varied, this would be the preferred method, as opposed to a business in which only one product is sold. Assume a company has pricing and cost information as follows:

For the upcoming period, the company wishes to generate operating income of $75,000. Given the cost and pricing structure for the company’s product, how much sales revenue must it generate to attain its target income?

Step 1: Calculate the contribution margin ratio:

The contribution margin ratio is the contribution margin in proportion to the selling price on a per-unit basis.

Note: The contribution margin ratio is calculated to one decimal place.)

Step 2: Calculate the sales revenue required to attain the target income:

Step 3: Create a contribution margin income statement, to check your previous work. Enter all amounts as positive numbers.

Feedback

APPLY THE CONCEPTS: Margin of Safety
Margin of safety can allow you to see how much padding there is for your company between profit and loss. If this number is great, it may indicate that your company is performing very well. If this number is small, it may be worth looking into possible remediation. Consider the following pricing and cost information:

For the upcoming period, the company projects that it will sell 2,000 units. Considering that the company has a unit break-even point of 1,400 units, what is the margin of safety in terms of both units and sales revenue? Round your answers to two decimal places, if necessary.

Suppose a monopolist facing a downward sloping inverse demand curve p(q) sets prices and quantity (p ∗ , q∗ ). Show that the area between the demand curve and the marginal revenue curve equals the consumer surplus.

price equals marginal revenue.

long-run average cost is minimized.

economic profit is zero.*

productive efficiency is achieved.

The three sections on the Statement of Cash Flows are

Multiple Choice

• Assets, Liabilities and Equity

• Operating, Investing and Financing

• Revenue, Expenses and Net Income

• I do not know

• Beginning cash, Ending cash and Change in cash

Write a paragraph conducting an online analysis of advertising used on various web sites. Analyze how these promotions are used to attract viewers to the site, to generate advertising revenue, to motivate online buying, or for other promotional goals.

The theory of the firm postulates that the primary objective of managers is to maximize